Buy Tomorrow’s Winners of the Renewable Energy War Today
Bluegums is a special place … and it shows the future of electrical energy.
It’s a cluster of buildings built out of Table Mountain sandstone, halfway up the slope between the rocky shore of False Bay and the mountainous spine above.
The views are stunning:
It’s also the southernmost inhabited parcel of land in the City of Cape Town.
A friend and colleague acquired it 20 years ago. I’ll call him Tim.
At the time, Bluegums consisted of a small, single building on a big mountainside plot. The previous owner was an eccentric who disdained technology, including electricity.
While Tim is a bit of an iconoclast, our mutual profession as nonprofit executives required electricity.
But when he approached the City of Cape Town to supply electrical service, they told him he’d have to pay for pylons and high-tension wire from the endpoint of their current service area.
So Tim became a solar-power pioneer.
He installed solar panels to generate electricity, a bank of car batteries to store it and the bits and pieces needed to distribute it throughout the house.
Tim’s commitment to self-sufficiency was ahead of its time.
But it’s paid off. Bluegums is now a high-end bed and breakfast that allows him to live comfortably in retirement with his family. And it still runs on solar power.
And that same commitment to self-sufficiency is a sure pathway to profits for forward-looking investors.
For Big Profits, Look to the Heavens
The power of the sun is on full display here in Georgia.
Step outside in mid-August, and the only thing that stops you from frying to a crisp is the drench of perspiration that emerges within seconds.
In Bauman Daily a few weeks back, I wrote about the huge strides humanity has made in generating power from sunlight … the way plants have done for eons.
From the invention of the photovoltaic cell in the 1880s until today, scientists have managed to bring the cost of solar-generated electricity down to the point where only wind power is cheaper.
As the owner of Bluegums can attest, most of that progress has been made in the last decade:
The Tipping Point
One of the most bizarre and frustrating aspects of my friend’s pursuit of solar self-sufficiency was initial resistance from government.
The Cape Town authorities — who supply electricity as a franchisee of the national electrical utility, Eskom — insisted that Tim pay a surcharge for generating his own electricity.
Yes, you read that right. Even though they refused to provide electricity unless he paid the capital cost of doing so, they wanted him to pay a fee to generate his own power.
The rationale was that Eskom had paid for the infrastructure to generate and distribute electricity. A portion of consumer revenue went to recoup that expense.
Generating your own electricity meant you were flouting that “civic responsibility,” hence the solar surcharge … or so the twisted reasoning went.
But that attitude is beginning to change. Several years ago, Eskom began to experience massive systemic failures. Electricity demand outstripped supply capacity.
To cope with this, the utility adopted a program of “load shedding,” which involved cutting off electricity to swaths of the country for hours at a time. It happens every year.
Only now … after years of self-interested and self-defeating resistance … is the South African government revising its regulations to allow local authorities and homeowners to generate their own electricity from renewable sources.
Too Much of a Good Thing
I thought about the South African example as I followed the headlines about electricity rationing in California this month.
Paradoxically, unlike South Africa, California’s recent blackouts are a product of its increasing reliance on solar power.
The Golden State has grown renewable energy to one-third of total supply over the last decade. Legal mandates require big future increases.
But California’s electrical system has failed to develop storage capacity for renewable-generated power. In fact, on windy, sunny days, the California electricity regulator is forced to give electricity away to neighboring states lest it overpower its own grid.
Lack of storage capacity creates a negative flipside.
Unlike my friend in Cape Town, whose batteries keep him going 24 hours a day, the grid in California couldn’t handle it when hot weather extended into darkness.
With solar power gone, the system failed as households ran air-conditioning all night:
Winning the Storage Wars
California proves that the next stage in the renewable power revolution will be storage.
Grid energy storage, as it’s known, involves converting excess electricity generated by renewable sources into forms that can be tapped later. Technologies include compressed air, liquid air and batteries.
As with the generation of solar power, the big challenge for storage will be to reduce the unit cost. Companies all over the world have stepped up investment to develop innovative technologies to achieve that goal.
I’m convinced that we have reached another tipping point … one where investors realize that over the next decade or so, the big profits in the energy sector will come from renewables, particularly from mass storage.
That’s one reason why renewable energy exchange-traded funds (ETFs) such as the Invesco Solar ETF (NYSE: TAN), the iShares global clean energy ETF (Nasdaq: ICLN) and the Invesco WilderHill Clean Energy ETF (NYSE: PBW) are blowing the market away this year:
It’s been a struggle — technological and political — to get renewable power to where it is today.
That struggle is bearing fruit … and my advice is to grab it while it’s ripe.
Editor, The Bauman Letter